Estee Lauder 2011 Annual Report Download - page 131

THE EST{E LAUDER COMPANIES INC. 129
Fiscal 2011 Impairments
As of the Company’s annual indefinite-lived asset impair-
ment test on April 1, 2011, the Company determined, as a
result of a planned discontinuation, that the carrying val-
ues of two brand trademarks exceeded their estimated
fair values, which were based on the use of a royalty rate
to determine discounted projected future cash flows
(“relief-from-royalty method”). As a result, the Company
recognized an impairment charge of $1.7 million for the
carrying values of the related trademarks. These impair-
ment charges were reflected in the makeup and skin care
product categories and in the Americas region.
During the third quarter of fiscal 2011, the Ojon report-
ing unit reassessed and subsequently altered the timing of
new market initiatives, including the rollout of reformu-
lated product lines and certain components of its future
international expansion plans, resulting in revisions to its
internal forecasts. The Company concluded that these
changes in circumstances in the Ojon reporting unit trig-
gered the need for an interim impairment review of its
trademark and goodwill. Additionally, these changes in
circumstances were also an indicator that the carrying
amount of the customer list may not be recoverable. The
Company performed an interim impairment test for the
trademark and a recoverability test for the customer list as
of February 28, 2011. For the customer list, the Company
concluded that the carrying amount of this asset was
recoverable. However, for the Ojon trademark, the
Company concluded that the carrying value exceeded its
estimated fair value, based on the relief-from-royalty
method. As a result, the Company recognized an impair-
ment charge of $7.0 million. After adjusting the carrying
value of the trademark, the Company completed an
interim impairment test for goodwill and recorded an
impairment charge for the remaining goodwill related to
the Ojon reporting unit of $29.3 million, at the exchange
rate in effect at that time. The fair value of the reporting
unit was based upon the income approach, utilizing esti-
mated cash flows and a terminal value, discounted at a
rate of return that reflects the relative risk of the cash
flows. In fiscal 2010, the income approach was used in
conjunction with the market approach but due to the
reporting unit’s existing negative margins, the market
approach was deemed not applicable. These impairment
charges were reflected in the hair care and skin care
product categories and in the Americas region.
Fiscal 2010 Impairments
During the fourth quarter of fiscal 2010, the Company
approved a restructuring initiative that included the
reformulation of Ojon brand products. The Company
concluded that this change in the formulation was an indi-
cator that the carrying amount of the product formulation
intangible asset may not be recoverable. As a result, the
Company recognized an asset impairment charge of $8.8
million, which is included in Restructuring and other spe-
cial charges in the accompanying consolidated statement
of earnings.
During the second quarter of fiscal 2010, the Darphin
reporting unit identified issues related to the planned
streamlining of its distribution process, resulting in revi-
sions to its internal forecasts. The Company concluded
that these changes in circumstances in the Darphin
reporting unit triggered the need for an interim impair-
ment test of its trademark and goodwill. The Company
determined that the trademark was impaired, with fair
value estimated based upon the relief-from-royalty
method, and therefore recorded an impairment charge of
$5.8 million, at the exchange rate in effect at that time, in
the skin care product category and in the Europe, the
Middle East & Africa region.
During the second quarter of fiscal 2010, the Ojon
reporting unit altered and delayed certain components of
its future expansion plans, resulting in revisions to its inter-
nal forecasts. The Company concluded for the Ojon
trademark and customer list, that the carrying values
exceeded their estimated fair values, which were deter-
mined based upon the relief-from-royalty method for the
trademark and discounted projected future cash flows for
the customer list. As a result, the Company recognized
asset impairment charges of $6.0 million for the trade-
mark and $17.2 million for the customer list, at the
exchange rate in effect at that time. After adjusting
the carrying value of the trademark and customer list, the
Company completed an interim impairment test for good-
will and recorded a goodwill impairment charge related to
the Ojon reporting unit of $16.6 million, at the exchange
rate in effect at that time. The fair value of the reporting
unit was based upon weighting of the income and market
The aggregate amortization expense related to amortizable intangible assets for fiscal 2011, 2010 and 2009 was $14.6
million, $9.1 million and $11.5 million, respectively. The estimated aggregate amortization expense for each of the next
five fiscal years is as follows:
FISCAL 2012 2013 2014 2015 2016
(In millions)
Estimated aggregate amortization expense $13.8 $13.5 $13.5 $13.5 $13.4